http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

CASE NO.: Appeal (civil)  5367 of 2001

PETITIONER: HEC VOLUNTARY RETD.EMPS.WELFARE SOC. & ANR

RESPONDENT: HEAVY ENGINEERING CORPORATION  LTD. & ORS

DATE OF JUDGMENT: 24/02/2006

BENCH: S.B. Sinha & Dalveer Bhandari

JUDGMENT: J U D G M E N T WITH CIVIL APPEAL NOs.5368-5378 OF 2001

S.B. SINHA, J :

 These two appeals involving common questions of fact and law  were taken up for hearing together and are being disposed of by this  common judgment.

The members of the appellant Union were employees of Heavy  Engineering Corporation Limited, the respondent herein (‘the Company’).   It is a sick company.  It was referred to BIFR in terms of the provisions of  Sick Industrial Companies (Special Provisions) Act, 1985.  As one of the  measures for revival of the company it floated a scheme for voluntary  retirement of its employees.  One of such scheme was floated in the year  1987 which remained in force upto 1990.  On and about 20.10.90 a revised  Voluntary Retirement Scheme was floated.  The said scheme was to remain  effective for an initial period of one year but admittedly the same has been  extended from time to time.  Both unionised and non-unionised employees  numbering in thousands opted thereunder.  Pursuant to or in furtherance of  the said scheme the following benefits were to be given to the employees  opting for voluntary retirement:

"5.1.1  Compensation at the rate of one and half  month months’ salary for each completed  year of service, subject to a ceiling equal to  the employee’s monthly salary at the time  of voluntary retirement multiplied by  balance months of service left before the  normal date of superannuation.   

5.1.2   Payment of salary for the notice period as  provided in the offer of appointment of the  employee.

5.1.3   Cash value of the unavailed Earned Leave  at the credit of the employee on the  effective date of voluntary retirement  subject to the existing limit of 240 days.

5.1.4   Payment of Provident Fund accumulation  inclusive of Corporation’s contribution in  full together with interest thereon standing  to the employee’s credit in the Provident  Fund Account as on the date of the  voluntary retirement.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

5.1.5   Gratuity as admissible under the Gratuity  Rules applicable to the employee.

5.1.6   Payment of TA, cost of transportation of  baggage, Transfer Grant and incidental  Travelling Allowance etc. as in the case of  serving employees on transfer for  proceeding to his Home Town or to the  place where he intends to settle in India."

The Company issued a circular letter being Circular No.5/97 dated  9th October, 1997 effecting revision in the scale of pay.  The same, although  issued on 9th October, 1997, was given retrospective effect from 1.1.1992.   It was to remain in force for a period of 5 years from the said date, i.e., upto  31.12.1996.  Clauses 3.2 and 3.3 thereof read as under:

"3.2            The revised Scales of Pay shall also be applicable  on a pro-rata basis to only those Executives, non Unionised  Supervisors and Employees in equivalent salary grades who  were on the rolls of the Corporation as on 1.1.1992 but have  subsequently ceased to be in service of the Corporation on  account of superannuation or death.

3.3             Benefits of revision of Scales of Pay shall not be  applicable to those Executives, Non Unionised Supervisors  and Employees in equivalent Salary Grades of the Corporation  who were on the rolls of the Corporation as on 1.1.1992 but  have subsequently left the services of the Corporation for the  following reasons:-

3.3.1   Dismissal; 3.3.2   Discharge; 3.3.3   Resignation without permission; 3.3.4   Resignation in cases where disciplinary action for  misconduct    involving moral turpitude has been  initiated or contemplated."

The appellants herein indisputably opted for the said voluntary  retirement scheme dated 22.10.1990 and retired between the period 1.1.1992  and 31.12.1996.

In view of the revision of scales of pay by the Company in terms  of the afore-mentioned circular dated 9th October, 1997 a contention was  raised by the appellant that they were entitled to the benefit thereof.  The  matter was referred to the Government of India and the Ministry of  Industries by a letter dated 24th March, 1993 stated that the employees who  had opted for voluntary retirement in terms of the aforementioned scheme  were entitled to the benefit of the revision of pay in the following terms :

"\005. the employees who have voluntarily retired  after 1.1.1992, on the effective date of revision of  wages and salary, as the case may be, he will be  eligible for arrears of wages including arrear of  compensation paid under the approved voluntary  retirement scheme.  However, the arrears will be  payable only after the wage revision is approved.  It  is the responsibility of the company to pay the  arrears arising from wage revision.  Arrears on  account of V.R.S., compensation, if any, may  however be met from the Budget grant of the  company for V.R.S. for the year in which such  revision takes effect."

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

As despite the said purported direction of the Central Government  the benefit of the revised scale of pay were not extended to the appellants  herein, they filed a writ petition before the Ranchi Bench of the High Court  of Judicature at Patna (now Jharkhand High Court).  A learned Single Judge  of the said Court dismissed the said writ petition opining that the appellants  had no legal right in relation thereto.  It was furthermore opined that when  the said circular No.5 of 1997 was issued, the appellants having voluntarily  retired, it was not applicable in their case.   

Letters Patent Appeals preferred there against by the appellants  were also dismissed.  The Division Bench of the High Court in its judgment,  which is impugned herein, relying upon or on the basis of Hindustan  Machines Tools Ltd. & Anr. vs. M.S. Kang/P.N. Kashyap reported in  (1997) 11 SCC 186 held that as the respondents had voluntarily retired  under a Special Scheme, they were not entitled for revised scale of pay as  revised under the said Circular No.45 of 1990 dated 1-3-1991.   

In assailing the said judgments, Mr. S.B. Upadhyay and Mr. M.A.  Chinnasamy, the learned counsel appearing on behalf of the appellants  would submit that the High Court committed a manifest error in arriving at  the said conclusion, in so far as it proceeded on the basis that the voluntary  retirement scheme dated 22.10.1990 was a special scheme as the same  remained in force for a period of 10 years.  It was furthermore urged that the  Company being a sick industry, it had taken recourse to the voluntary  retirement on a long-term basis and even prior to introduction of the said  scheme of the year 1990, another scheme had been floated.  The learned  counsel for the appellants furthermore urged that no distinction exists  between ’voluntary retirement’ and ’superannuation’ and in support of the  said proposition, reliance has been placed on V. Kasturi vs. Managing  Director, State Bank of India, Bombay & Anr.  (1998) 8 SCC 30.

Mr. Ranjit Kumar, learned Senior counsel appearing on behalf of  the respondent, on the other hand, would contend that having regard to the  contract of voluntary retirement, the concerned employees having already  taken the benefits admissible under the scheme including the proportionate  pay for their future service were not entitled to benefits of revised scale of  pay.  The employer in arranging its financial plan on request to payment of  benefits under the voluntary retirement scheme could not and did not  anticipate that there would be a revision in the pay scale and the same would  be applicable also to the employees who had opted for voluntary retirement.   Pensioners, according to the learned counsel, stand absolutely on a different  footing inasmuch as even after their superannuation they continue to draw  pension.  Similarly, the family members of the deceased employees would  be entitled to family pension.  Upon such voluntary retirement in terms of  the scheme, the jural relationship comes to an end, Mr. Ranjit Kumar  argued.  Drawing our attention to the distinction between clauses 3.2 and 3.3  afore-mentioned, it was submitted that it specifically lays down as to what  was to be included has been included and what was to be excluded has been  excluded.  Thus, the Company never had any intention to include the cases  of the employees who had opted for voluntary retirement in terms of the  scheme, they have not been included in clause 3.2 of the Circular.  Revised  pay scale being applicable to a person who is in service, a’fortiori the same  would be inapplicable to the persons who are not in service, according to the  learned counsel.

In reply, Mr. S.B. Upadhyay, learned counsel submitted that the  jural relationship was created in terms of the scheme itself and in this behalf  our attention was drawn to paragraph 20.2 of afore-mentioned Circular  No.5/97 which reads as under:

"20.2   Only those separated Executives,  Supervisors and Employees in the equivalent salary  grades who ceased to be in employment of the  Corporation due to superannuation or death on or

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

after 01.01.1992 shall be eligible for arrears on  pro-rata basis."

An offer for voluntary retirement in terms of a scheme, when  accepted, leads to a concluded contract between the employer and the  employee.   In terms of such a scheme, an employee has an option either to  accept or not to opt therefor.  The scheme is purely voluntary, in terms  whereof the tenure of service is curtailed which is permissible in law.  Such  a scheme is ordinarily floated with a purpose of downsizing the employees.   It is beneficial both to the employees as well as to the employer.  Such a  scheme is issued for effective functioning of the industrial undertakings.   Although the Company is a "State" within the meaning of Article 12 of the  Constitution of India, the terms and conditions of service would be governed  by the contract of employment.  Thus, unless the terms and conditions of  such a contract are governed by a statute or statutory rules, the provisions of  Contract Act would be applicable both at the formulation of the contract as  also the determination thereof.  By reason of such a scheme only an  invitation of offer is floated.  When pursuant to or in furtherance of such a  voluntary retirement scheme an employee opts therefor, he makes an offer  which upon acceptance by the employer gives rise to a contract.  Thus, as  the matter relating to voluntary retirement is not governed by any statute,  the provisions of Indian Contract Act, 1872, therefore, would be applicable  to. [See Bank of India & Ors. vs. O.P. Swarnakar & Ors.. (2003) 2 SCC  721)]  

It is also common knowledge that a scheme of voluntary  retirement is preceded by a financial planning.  Finances for such purpose,  either in full or in part, might have been provided for by the Central  Government.  Thus financial implications arising out of implementation of a  scheme must have been borne in mind by the Company, particularly when it  is a sick industrial undertaking.  Offers of such number of employees for  voluntary retirement, in that view of the matter, were to be accepted by the  Company only to the extent of finances available therefor.   

We have noticed hereinbefore the benefits admissible under the  scheme.  The employee offering to opt for such voluntary retirement, not  only gets his salary for the period mentioned therein but also gets  compensation calculated in the manner specified therein, apart from other  benefits enumerated thereunder.   

A clarification was issued on and about 17th July, 1992 whereby  and whereunder the benefit of compensation and notice pay was restricted to  Basic Pay and Dearness Allowance that would have been paid to the  employees till the date of their supernanuation and in case the employee  being released after serving the full notice period or part thereof and having  drawn the salary for the same, the notice pay would not be admissible to that  extent.  It is on the afore-mentioned premise clauses 3.2 and 3.3 of the said  scheme are to be construed.

The revised scale of pay have been made applicable on a pro-rata  basis to those employees who were on the rolls of the Corporation as on  01.01.1992 but have subsequently ceased to be in service of the Corporation  on account of superannuation or death.  While extending the said benefit,  the word "only" has been used which is of some significance.  Clause 3.3 of  the scheme which excludes the applicability of the scheme categorically  states that the same shall not be applicable to those who were on the rolls of  the Corporation on the said date, but subsequently left the services for the  reasons stated thereunder, namely :

1.      Dismissal; 2.      Discharge; 3.      Resignation without permission; 4.      Resignation in cases where disciplinary action for misconduct  involving moral turpitude has been initiated or contemplated.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

The question which arises for our consideration is whether in  view of the fact that the employees who had opted for voluntary retirement  having not been excluded from the purview of Clause 3.3 of the said  Circular No.5/97, would be treated to be included or the benefits thereof  would be available to only such employees who come within the purview of  Clause 3.2 thereof ?   

Construction of the afore-mentioned provisions undoubtedly  would depend upon the purport and object of the voluntary retirement  scheme vis-a-vis the retrospective effect given to the revision of pay in  terms of the afore-mentioned circular dated 9th October, 1997

The voluntary retirement scheme speaks of a package.  One  either takes it or rejects it.  While offering to opt for the same, presumably  the employee takes into consideration the future implication also.  

It is not in dispute that the effect of such voluntary retirement  scheme is cessation of jural relationship between the employer and the  employee.  Once an employee opts to retire voluntarily, in terms of the  contract he cannot raise a claim for a higher salary unless by reason of a  statute he becomes entitled thereto.  He may also become entitled thereto  even if a policy in that behalf is formulated by the Company.   

We have indicated hereinbefore that before floating such a  scheme both the employer as also the employee take into account financial  implications in relation thereto.  When an invitation to offer is floated by  reason of such a scheme, the employer must have carried out exercises as  regard the financial implication thereof.  If a large number of employees opt  therefor, having regard to the financial constraints an employer may not  accept offers of a number of employees and may confine the same to only a  section of optees.  Similarly when an employer accepts the  recommendations of a Pay Revision Committee, having regard to the  financial implications thereof it may accept or reject the whole or a part of  it.  The question of inclusion of employees who form a special class by  themselves, would, thus, depend upon the object and purport thereof.  The  appellants herein do not fall either in clauses 3.2 or 3.3 expressly.  They  would be treated to be included in clause 3.2, provided they are considered  at par with superannuated employee.  They would be excluded if they are  treated to be discharged employee.

We have noticed that admittedly thousands of employees had  opted for voluntary retirement during the period in question.  They  indisputably form a distinct and different class.  Having given our anxious  consideration thereto, we are of the opinion that neither they are discharged  employees nor are superannuated employees.  The expression  "superannuation" connotes a distinct meaning.  It ordinarily means, unless  otherwise provided for in the statute, that not only he reaches the age of  superannuation prescribed therefor, but also becomes entitled to the retiral  benefits thereof including pension.  "Voluntary retirement" could have  fallen within the afore-mentioned expression, provided it was so stated  expressly in the scheme.

Financial considerations are, thus, a relevant factor both for  floating a scheme of voluntary retirement as well as for revision of pay.   Those employees who opted for voluntary retirement, make a planning for  the future.  At the time of giving option, they know where they stand.  At  that point of time they did not anticipate that they would get the benefit of  revision in the scales of pay.  They prepared themselves to contract out of  the jural relationship by resorting to "golden handshake".  They are bound  by there own act. The parties are bound by the terms of contract of  voluntary retirement.  We have noticed hereinbefore that unless a statute or  statutory provision interdict, the relationship between the parties to act  pursuant to or in furtherance of the voluntary retirement scheme, is

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

governed by contract.  By such contract, they can opt out for such other  terms and conditions as may be agreed upon.  In this case the terms and  conditions of the contract are not governed by a statute or statutory rules.

The question came for consideration before the Division  Bench of this Court in A.K. Bindal & Anr. vs. Union of India & Ors.  [(2003) 5 SCC 163] wherein this Court took notice of the fact that in  implementation of such a scheme a considerable amount has been paid to  the employee ex gratia besides the terminal benefits in case he opts therefor.   It has further been noticed that the payment of compensation is granted not  for doing any work or rendition of service and in lie of his leaving the  services of the company.

[See also Officers & Supervisors of I.D.P.L. vs. Chairman  & M.D., I.D.P.L. & Ors.  (2003) 6 SCC 490]

In State of Andhra Pradesh and Anr. vs. A.P. Pensioners  Association & Ors.  [JT 2005 (10) SC 115], this Court categorically held  that financial implication is a relevant criteria for the State Government to  determine as to what benefits can be granted pursuant to or in furtherance of  the recommendations of a Pay Revision Committee.  A’ fortiori while taking  that factor into account, an employer indisputably would also take into  consideration the number of employees to whom such benefit can be  extended.   

It will also be germane for such a purpose to take into  consideration the question as to whether those who are no longer on the rolls  of the company should be given the benefit thereof.

Considering the matter from that context, we are of the opinion  that it cannot be said that the Company intended to extend the said benefits  to those who had opted for voluntary retirement. Clause 3.2 of the circular  includes only those who were on the rolls of the Corporation as on 1.1.1992,  as also those who ceased to be in service on that date on account of  superannuation or death.  The appellants do not come in the said category.   In view of the fact that they have not been expressly included within the  purview thereof, we are of the opinion that although they have not been  excluded by clause 3.3, they would be deemed to be automatically excluded.

In Hindustan Machine Tools Ltd. & Anr. vs. M.S.  Kang/P.N. Kashyap (1997) 11 SCC 186, this Court observed that  

"10. \005\005..Those who retired on attaining the age of  58 years or voluntarily retired under Rule 24.2(b) or  (c), as the case may be, under the Conduct,  Discipline and Appeal Rules referred to hereinbefore  are the persons referred to in clause 2.2.2 of the  office order.  The benefits of the revision of pay  scales shall not be applicable to those persons who  were on the rolls of the Company as on 31-12-1986  but subsequently left the service of the Company  before the date of issue of Office Order No.45 of  1990 for any reason, whatsoever, including  resignation except the category mentioned in clause  2.2 above.  Thereby the necessary implication is that  all those who are covered and stand on the same  footing are excluded except to the extent of gratuity,  revision of the terminal benefits as mentioned in para  6.13 which postulates that gratuity paid or payable to  employees covered under clause 2.2 will be  recalculated on the revised pay subject to the  prescribed ceiling.  Thus, it could be seen that the  distinction has been drawn between employees who  retired voluntarily under rule 24.2 of the Conduct,  Discipline and Appeal rules or the employees who

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

retied under the Special Scheme operating from time  to time.  The respondents having retired under the  Special Scheme are not employees covered under the  Special Scheme are not employees covered under the  voluntary retirement under Rule   24.2 of the  Conduct, Discipline and Appeal Rules referred to  hereinbefore."

The expression "Special Scheme" used therein must be  understood in the context of a general Scheme of employment governing the  terms and conditions of service or which is a part of the statutory rules  governing the service of the employees.  In this sense also the Voluntary  Retirement Scheme is a Special Scheme.  The scheme was initially  introduced for one year.  It might have been extended from time to time.   Extension of such scheme indisputably must have been on the basis of  exercises resorted to by the employer as regards the financial implications  thereof, availability of fund, average number of employees opting therefor  and other relevant factors.  Only because the said scheme remained in force  for a total period of 10 years, the same would not mean that it became a part  of the general terms and conditions of contract of employment.  Furthermore  evidently as the scheme floated in 1987 did not work to the satisfaction of  the Company, it was replaced by the year 1990 scheme upon extending  more benefits to the employees.

State Bank of India vs. A.N. Gupta & Ors. [(1997) 8 SCC  60] whereupon Mr. Upadhayay placed strong reliance, departmental  proceeding could be initiated in terms of the pension rules.  It is in that  context this Court held:  

"It cannot be said that an employee retires only on  superannuation and there is no other circumstance  under which an employee can retire.  Retirement  on superannuation is not the only mode of  retirement known to service jurisprudence.  There  can be other types of retirements like premature  retirement, either compulsory or voluntary.  It  would be in the case of a premature retirement or  any other contingency when an employee leaves  the service of the Bank before he superannuates,  Rule 11 would become applicable.  Retirement on  superannuation is automatic as per Rule 26 of the  Service Rules.  No further action on the part of    the Executive Committee of the Central Board of  the Bank would be required in such a case and rule  11 will not be applicable."

The said has no application in the present case.

It has not been suggested that voluntary retirement, in absence  of any express statutory rule governing the filed, would bring about a case  of superannuation.  In V. Kasturi (supra) a new Rule was introduced  providing for pension of an employee after retirement on completion of 20  years of service, provided he requested in writing therefor.  The questions  which fall for consideration therein was that if a person was eligible for  pension at the time of his retirement and if he survives till the time of  subsequent amendment of the relevant pension scheme, whether he would  become entitled to enhanced pension or would become eligible to get more  pension as per the new formula of computation of pension.  In the fact  situation obtaining therein, it was held that employees could be divided in  two categories, i.e., those who were eligible for pension at the time of his  retirement and those who were not.  Whereas in the case of first category the  benefit of the amended provisions would be applicable, but in the second it  would not.   V. Kasturi (supra) also, thus, in our opinion, is not applicable  to the fact of the present case.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

It may be true that the Central government interpreted the  provision differently, but in the absence of any statutory provision the same  is not binding upon the respondent.   It is of some interest to note that the  Central Government opined that the Company itself has to bear the burnt of  additional burden which on all probabilities was an impossible task.

Our attention has not been drawn to the provision of any  statute that even in its day to day functioning the Company would be bound  by any direction issued by the Central Government.  It may be that the  respondent is a Government Company within the meaning of Section 617 of  the Companies Act.  It may be that entire shareholding of the Company is  held by the the President of India or his nominee but in law it is a separate  juristic entity and, thus, in absence of any statutory provision, the Company  was not bound by any such clarification issued by the Central Government.   Even where a statute confers such a jurisdiction on the Central Government,  the same must be held to be confined only to the provisions contained  therein.  [See State of U.P. vs. Neeraj Awasthi & Ors. (2006) 1 SCC 667]

Although either before the High Court or before us no  submissions were made relying on or on the basis of office memorandum  dated 5th May, 2000, a copy whereof has been annexed only with the written  submissions.  We are, however, of the opinion that the same would not  advance the case of the appellants for more than one reason.  Firstly, the  said office memorandum dated 5th May, 2000 cannot be considered by us as  the same had been filed for the first time with the written submissions.  No  opportunity therfor had been given to the respondents to respond thereto.   Secondly, the same is a general circular whereas the circular letter dated 24th  May, 1993 issued by the Union of India deals with the particular problem  wherein it has categorically been stated that the Central Government shall  nor undertake the financial responsibility therefor.  In any event, the said  letter refers to the schemes which might have come into force after 2000.  It  evidently, does not refer to the 1987 Scheme vis-‘-vis the revision of the  pay scales.

The Appellants filed the writ petition relying on or on the basis  of the aforementioned circular of the Union of India dated 24th May, 1993.

For the foregoing reasons, we are of the view that the  impugned judgment cannot be faulted with.  The appeals, thus, being devoid  of any merit are dismissed.  No costs.